GDP Looks Strong
Prior Week Summary
Equity market volatility continued to drive activity in the fixed income markets last week, bringing the 10-year Treasury note back below 3.10%. The economic data point that garnered the most market attention was the 3.5% print for third-quarter GDP, which easily beat the consensus expectation for a gain of 3.3%. The report detailed that consumer spending, which accounts for roughly 70% of the economy, unexpectedly rose 4%, the largest gain since 2014.
On the other hand, however, non-residential business investment was a drag on growth, increasing at a 0.8% annualized rate in the third quarter. Government spending was reported to rise by the most in two years, somewhat offsetting issues relating to global trade. It remains to be seen how the recent tightening of financial conditions from the impacts of changes to monetary policy and equity market volatility will ultimately flow through to the real economy. As of this writing, the projected hike in December seems to be on track, although longer dated projections have become less clear.
In other market news, the FASB issued ASU 2018-16, which officially adds SOFR as a benchmark from the accounting perspective. This means that institutions can enter into SOFR swaps to hedge the benchmark risk of this index, assuming the institution has early adopted ASU 2017-12. Liquidity in exchange-traded futures continues to develop, and debt issuances referencing SOFR has only continued to grow.
The Look Forward
The data calendar is active this week, with the October payrolls report taking center stage on Friday. Also expected are updates on personal income and spending, and the ISM manufacturing index.
Sources: Bloomberg Finance L.P., (Treasuries) Chatham Financial (Swap Curves), FHLB Boston, Chicago, Dallas, Des Moines for FHLB Advance Rates. Wells Fargo Brokered CD Indications.
Market Implied Policy Path (Overnight Indexed Swap Rates)
Source: Chatham Financial
Fixed Income Snapshot
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